Podcast Show Notes
2025-05-02 Federal Market Insights Episode 10 — Session Overview
WPI Podcast Episode 10 Summary
FOCI – May 2, 2025 Summary
This Podcast reviewed the following concepts, ideas and resources.
Foreign Ownership, Control or Influenced (FOCI) is defined as – the power to influence management or operations. This is an older concept that originally was applied to defense contractors with classified contracts. However, threats related to FOCI interactions extend beyond classified contracts. FOCI can also pose threats to unclassified contracts and in some cases routine business operations.
Companies need to be aware of the idea of FOCI. A variety of issues can impact supplier agreements. Normal business activities such as the creation of Joint Ventures, accepting investment, and activity related to Acquisition and Mergers may require review. Concerns extend to safeguarding IP, supply chains, and business operations.
Foreign investment can create FOCI concerns. While the US sees foreign investment as positive, there can also be concerns related to the source of investment funds. The following Policy statement was published earlier this year – America First Investment Policy – see link below. One line of note was the statement that “Economic Security was national security.” A company in need of cash may see investment as an immediate solution to the owner’s problems. That may be true. Nevertheless, investment may provide ownership, control, and influence to the investor. These are elements of FOCI and they can create larger issues.
Any foreign entity is a source of FOCI related issues. Allies and members of NATO can create FOCI concerns, but these entities are not seen as being immediately problematic. Conversely, countries defined as FCOC – Foreign Countries of Concern are seen as being higher FOCI risk. The following countries are included as FCOC – China, Russia, Iran, North Korea. See: https://business.defense.gov/Resources/FOCI/
Businesses must be aware not only of FOCI but the types of activities that create FOCI. Reviews should be conducted and questions asked when FOCI-like activities are involved. Opportunities that are “too good to be true” or require immediate or accelerated action should be questioned. These types of reviews should be an ongoing process, both for the immediate company and for suppliers and subcontractors. Consider adding a requirement to both supplier and subcontractor agreements that include notification of the issuing company should specified activities take place.
In addition to creating national security issues, FOCI can impact business operations including eligibility for federal contracts and subcontracts. FOCI can also have a much larger impact including rippling upwards through the supply chain of origin or infecting other supply chains common to a FOCI-compromised company.
Overall, companies need to conduct appropriate due diligence, document the findings of these reviews, and when potential FOCI concerns emerge contact authorities prior to completing any transaction.
Resources:
Office of Small Business Programs (Department of Defense)
https://business.defense.gov/Resources/FOCI
America First Investment Policy: https://www.whitehouse.gov/presidential-actions/2025/02/america-first-investment-policy/
D O D INSTRUCTION 5205.87
Mitigating risks related to Foreign Ownership, Control, or Influence for covered dod contractors and subcontractors
https://www.esd.whs.mil/Portals/54/Documents/DD/issuances/dodi/520587p.pdf?
White House Increases Scrutiny on Foreign Investors: Why FOCI Is a Concern for International Businesses – written by Baker Hostetler; February 26, 2025
https://www.jdsupra.com/legalnews/white-house-increases-scrutiny-on-1566405
DOD Proposed Rule Will Expand FOCI Requirements to Non-Classified Defense Contracts – Holland & Knight Alert; April 23, 2025